What to Know as the Pause on Student Loans Is Set to Expire

College students entering campus this fall may be puzzled by recent headlines about student debt.

Will the moratorium on student loan payments that began early in the pandemic be extended? Will some student debt be erased?

“It’s a very confusing time,” said Regan Fitzgerald, manager of the Pew Charitable Trust’s project on student borrower success.

Here is an overview of what is known and what is unknown and what students should consider.

The moratorium on most federal student loan payments and interest is scheduled to end on Aug. 31. Since students have not yet paid off their loans, the extension will have little impact on students, a financial aid expert said. House says. (But even those who rent at school are benefiting from the suspension. interest on loan.)

And while it’s still unclear whether the Biden administration will forgive some student debt, the relief may be limited. Borrowed loans may be covered (probably before June 30th of this year, Politico) — suggesting that students borrowing in the 2021-22 academic year may benefit. But until plans are announced, “we don’t know what the parameters will be,” Fitzgerald said.

A spokesman for the Department of Education said in an emailed statement that the department’s “extensive debt forgiveness review is ongoing and no decision has been made.”

Fitzgerald said it’s important for borrowers to keep up with student loan options and policies, as the rules seem to change all the time. “Financial awareness around student loans is very important,” she said.

Students who owe money for the fall should focus on what they need instead of guessing if the debt will go away, says the Institute for College, a nonprofit that promotes college affordability. said Michele Streeter, Associate Director of Policy and Advocacy at Access and Success. .

“I strongly recommend that no one should borrow, assuming the loan will be forgiven in the future,” Streeter said. “If I were a borrower, I would turn off the noise and focus on what I need to borrow right now.”

Financial aid expert Mark Kantrowitz advises students to “borrow as much as you need, not just as much as you can”. Your total debt at graduation should be less than your expected annual starting salary. Ideally, “much less”.

Abby Shaffros, an attorney at the National Center for Consumer Law, said students are right to worry about borrowing too much, but they should be careful not to overborrow. “I don’t want to borrow less, but I don’t have enough to buy books,” she said.

The Consumer Financial Protection Bureau provides tools on its website to help you determine how safe you can be. Borrow Based on your financial situation and expected income after graduation.

Here are some student loan questions and answers.

1st of July Federal Fees student loan For undergraduates, it rose to 4.99% on loans made by June 2023. Federal loan interest rates are set each spring based on a formula and apply to all new loans made during a given academic year. The interest rate is fixed for the term of the loan. So even if the interest rate on his loan last school year was 3.73%, it wouldn’t change. (Most student loan interest rates are temporarily set to zero during the suspension of payments. Expect normal interest rates to apply once the suspension is lifted.)

In general, dependent students can: Borrow Federal loans up to $5,500 in the first year, $6,500 in the second year, and $7,500 each in the third and fourth years, for an overall cap of $31,000 (if it takes longer to graduate) prepare for). The borrowing limit is higher for independent students and graduate students. If additional funds are needed, parents can borrow so-called plus loans with higher interest rates. (Private lenders also offer student loans, but the loans don’t have the consumer protection of federal loans and aren’t included in the suspension of payments.)

With the August deadline approaching without announcing any plans to resume payments, it seems increasingly likely. “I think it’s very likely that there will be another extension,” Streeter said. Kantrowitz said he believes the moratorium could be extended until next year.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, said loan servicers — companies that send statements and manage borrower payments — have been given “strong guidance” by the Department of Education. and deferred notifying borrowers about the resumption of payments. If the moratorium on payments is not extended, he said, “we have missed an opportunity to prepare for it.”

The New York Times provides a guide for borrowers to prepare for repayment.

A spokesman for the Department of Education said it would contact borrowers directly about ending the payment suspension if a decision is made, adding that President Biden suggested it would be done by the end of August.

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